Keyera Corp. (KEYUF) CEO David Smith on Q1 2019 Results - Earnings Call Transcript

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About: Keyera Corp. (KEYUF)
by: SA Transcripts
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Earning Call Audio

Keyera Corp. (OTC:KEYUF) Q1 2019 Earnings Conference Call May 15, 2019 10:00 AM ET

Company Participants

Lavonne Zdunich - Director of Investor Relations

David Smith - President and Chief Executive Officer

Bradley Lock - Senior Vice President and Chief Operating Officer

Dean Setoguchi - Senior Vice President and Chief Commercial Officer

Steven Kroeker - Senior Vice President and Chief Financial Officer

Conference Call Participants

Matthew Taylor - Tudor Pickering Holt & Co.

Robert Hope - Scotia Capital Inc.

Robert Kwan - RBC Capital Markets

Robert Catellier - CIBC World Markets

David Galison - Canaccord Genuity Corp.

Andrew Kuske - Credit Suisse Securities

Patrick Kenny - National Bank Financial

Operator

Good morning. My name is Nallie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Keyera Corp. First Quarter 2019 Results. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]

Thank you. Lavonne Zdunich, Director of Investor Relations, you may begin your conference.

Lavonne Zdunich

Thank you and good morning, everyone. It’s my pleasure to welcome you to Keyera’s first quarter conference call for 2019. We have a lot of exciting news to discuss with you today. We want to ensure that there is enough time for your questions, so let’s get started.

On the call today is David Smith, our President and CEO; Steven Kroeker, Senior Vice President and CFO; Brad Lock, Senior Vice President and COO; and Dean Setoguchi, Senior Vice President and CCO.

I would like to remind listeners that some of our comments and answers that we will speak to today speak of future events. These forward-looking statements are given as of today’s date and reflect events or outcomes that management currently expects. In addition, we will also refer to some non-GAAP financial measures.

For additional information on non-GAAP financial measures and forward-looking statements, please refer to our public filings that are available on SEDAR and our website.

With that, I’m going to turn it over to David.

David Smith

Thank you and good morning, everyone. As Lavonne mentioned, we have a number of exciting developments to discuss with you today. First, let’s start with our quarterly financial results, which we reported yesterday. After a record year in 2018, Keyera’s midstream services remain in high demand. We achieved record gross natural gas processing volumes and our fractionation units operated above nameplate capacity at Fort Saskatchewan. We did have an unplanned outage at our AEF facility in February that lasted 17 days, and as a result, our first quarter results were lower than anticipated.

We delivered adjusted EBITDA of $164 million, distributable cash flow of $0.51 per share and net earnings of $0.16 per share. For the full-year in 2019, we expect another year of strong financial performance, as we are bringing new capital projects online and market fundamentals are supporting higher fractionation fees. Our marketing business is expected to generate between $280 million and $320 million in realized margin in 2019, as AEF benefits from lower butane feedstock costs.

We continue to successfully execute our strategy expanding and enhancing our integrated network of assets through disciplined capital investment. We are very pleased to be proceeding with KAPS, our new condensate and NGL pipeline system. Keyera has partnered with SemGroup and KKR to build this highly desired world-class pipeline solution that will transport condensate and NGL volumes from the liquids-rich Montney and Duvernay developments in Northwest – Northwestern Alberta to Fort Saskatchewan.

KAPS provides Keyera with secured long-term take-or-pay revenues and strong project returns. It enhances our integrated value chain and creates a platform for numerous future investment opportunities. We thank our customers for their endorsement and commitment to our solution.

With that, I’ll turn it over to Brad.

Bradley Lock

Thank you. As David mentioned, this is a big day and an exciting time for us as we’re about to kick off the next wave of cash flow growth for Keyera, focused on processing production from the liquids-rich Montney and Duvernay developments in Northwestern Alberta.

We’re growing our footprint by expanding our Simonette gas plant, as this plant continues to operate in near capacity and building out our Wapiti and Pipestone gas plants. Phase one of Wapiti and now our Pipestone gas plants are both 100% fully contracted with new recently signed processing agreements.

I’m pleased to report that we have completed and commissioned phase one of the Wapiti gas plant on schedule and in a safe and environmentally responsible manner. All equipment is operational and our anchor tenant, Paramount, expects to achieve first sales gas any day now and will continue to increase his production bringing on existing drilled and completed wells.

I want to express my sincere appreciation to our project and operations teams for this outstanding accomplishment. This has been the largest construction project in Keyera’s history and demonstrates our ability to successfully complete world skill projects in Alberta.

To increase the capture area in the Wapiti gas plant, we are building the North Wapiti Pipeline System. This pipeline is nearly complete and includes the successful crossing of the Wapiti River this past winter. The compression facilities are expected to be completed in the second-half of the year and will bring volumes from the Pipestone Energy’s development into the existing plant.

The second phase of the Wapiti gas plant is currently under construction and is expected to be completed in mid-2020, providing the capacity to meet the growing volume profiles from both anchor tenants.

In 2021, once we have completed our development plants at Simonette, Wapiti and Pipestone, we will have gas processing capacity in the region of nearly 1 billion cubic feet per day and increased our condensate handling capacity to 90,000 barrels per day.

As producers continue to develop the liquids-rich formations around our plants, they have been searching for a competitive option to move their growing condensate and NGL volumes from the field to Alberta’s liquids hub in Fort Saskatchewan. Our KAPS project is that solution for industry.

And I’ll now pass it over to Dean to talk about this outstanding project.

A - Dean Setoguchi

Thanks, Brad. This is a very exciting project for Keyera. KAPS is backed by multiple long-term agreements averaging 14 years in length and includes 35% take-or-pay commitments. We currently have over 60% of the initial capacity contracted, and I’m happy to say late yesterday, we added two new shippers increasing this to over 65%.

KAPS will be initially connected two or three Montney gas plants for several third-party facilities. By 2022 when KAPS is operational, Keyera and SemCAMS will have nine gas plants with over 2 billion cubic feet per day of gas processing and 130,000 barrels per day of condensate handling capacity that could supply volumes to KAPS, increase the platform for numerous future investment opportunities that could include additional gas in condensate processing investments, new NGL infrastructure and other value-added services.

While we evaluate future opportunities, we will remain committed to a disciplined approach to responsible growth.

With that, Steven will talk about our financial position.

Steven Kroeker

Thanks, Dean. We’re pleased to see our customers are continuing to sign up for midstream services under long-term take-or-pay contracts. During the quarter, we had significant take-or-pay contracts signed to make KAPS a reality, to fill the Pipestone plant and to support sulfur handling investments related to the oil sands. These types of contracts provide a solid financial footing as we invest capital.

Our capital program is now at $2.9 billion, which includes our 50% share of the KAPS project. To date, we have funded approximately $1.1 billion of this capital program, while maintaining a net debt-to-EBITDA covenant ratio of three times, well below many of our peers. We plan to fund the remaining portion of this current capital program without issuing common equity, apart from the existing DRIP program.

While we are comfortable operating in a covenant leverage ratio above three times for a period of time, we may consider other financing alternatives, such as hybrid debt or preferred shares to fund a portion of the capital program.

An additional source of funding for our capital projects is the cash flow generated from our facility-based marketing business. Over the past five years, the Marketing segment has generated over $1 billion in realized margin, which helps to fund our ongoing capital programs.

On average, we expect marketing to deliver a base annualized realized margin of between $180 million and $220 million. This base range includes the number of assumptions such as AEF operating near capacity, butane cost being similar to the 2018 contract year, WTI being between US$55 per barrel and US$65 per barrel, and other variables as described in our MD&A.

For 2019, we expect to be well above this base range and in realized margin of $280 million to $320 million, primarily due to a significant shift in market fundamentals for butane that allowed us to contract butane supply at cost much lower than the previous year.

With that, I’ll turn it over to David for closing remarks.

David Smith

Thanks, Steven. Although our industry continues to face a number of challenges, I remain very confident that Canadian oil and gas represents a tremendous opportunity for our country. Not only does our basin have some of the best geology in the world, we are leaders in responsible energy development.

We believe with improved market access, Canadian oil and gas can play a critical role on the international stage and not only help to minimize carbon emissions, but also improve the quality of life for millions of people around the world. I’m proud to lead a team at Keyera that is part of this global solution. We are committed to safety, operational excellence, environmental responsibility and serving our customers, and we’re very excited about the suite of opportunities ahead of us.

On behalf of Keyera’s Board of Directors and management team, I would like to thank our employees, customers, shareholders and other stakeholders for their continued support.

With that, I’ll turn it back over to the operator. Please go ahead with the questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Matthew Taylor of Tudor Pickering Holt. Your line is open.

Matthew Taylor

Hey, thanks for taking my questions here, guys. Just thinking about the opportunity for fractionation now that you’ve got KAPS in the hand here. So, obviously, NGLs are destined for a tight frac market. Is there really two opportunities here? First the contracting one that then potentially shipped contract tenure from one year to more in line KAPS commitments, and then the second one here in potentially expansion?

David Smith

Yes, absolutely, Matthew. Do you want a BD job here at Keyera? Yes, you absolutely hit it on the head. I mean, really we have an opportunity to secure long-term cash flow streams with longer-term commitments and that wouldn’t extend both to the KAPS pipeline, but also downstream in our business to our frac business as well. And we also see more demand for storage and also terminaling services as well. So, I think that this will create growth opportunities all the way through our value chain.

Matthew Taylor

And then maybe just as a follow-up. Is there possibly could be bottleneck to fracs or what you need to build the new one?

David Smith

No, it’s something that we’re sort of evaluating with the best way to add capacity at our Fort Saskatchewan site.

Matthew Taylor

Okay, great. And then shifting over to Pipestone now that’s fully contracted and you got positive KAPS FID in hand. How are you thinking about timing of phase 2 and maybe even more broadly the next leg of growth in the Pipestone area?

David Smith

Well, we’re very actively engaged in discussions with the producers in the area, and again, it’s going to be based on the timing of the developments. And obviously, we have to have a level of the commitment that would support the investment of new capital to build the second phase. So, we’re actively working with the customers, I guess, the key message and again, when they’re ready to make that commitment, we’ll be there to provide the solution.

Matthew Taylor

And then one last one, if I may. You mentioned the base marketing guidance of $180 million to $220 million. And looking at the assumptions, several of them windup with the last 12 trailing months of realized marketing margin. I’m just curious how you can reconcile that back to, I think, last 12 trailing months with $260 million and going from $180 million to $220 million. So I’m just curious any thoughts there?

Steven Kroeker

Yes, it’s Steven here. As you can appreciate, there are a lot of different variables throughout our marketing business and again, not just an iso-octane business, but the condensate, the liquids blending, the propane on those various fronts there. I would comment that the 2018 year, in particular, had a very good strength on the hedging program.

As you can appreciate when the WTI decreased, that caused the whole bunch of positive financial benefits on our side, which again proved the hedging strategy that we have, as well we had just extra strength on things that condensate marketing and iso-octane business throughout the year.

If you recall back in the Q2 time, there was extra demand for iso-octane businesses there. And so, again, there is just a variety of factors. What we tried to do in the upcoming range, you just realize that give a – give an anchor point or two to help people understand the context, but we’re comfortable that’s a comfortable range to use as a base marketing. And as we talked about in the presentation or in the Q1, the expected results for this year are clearly above that, largely because of the ability to source the butane at a lower cost for this year.

Matthew Taylor

Great. That’s helpful. Thanks for taking my questions.

Operator

And our next question comes from the line of Rob Hope, Scotiabank. Your line is open.

Robert Hope

Good morning, everyone. Congrats on all the news. Maybe to start off with, can you just provide a little bit of color about how the partnership came about with SemCAMS? Why was it replaced? As well as, what do you think SemCAMS brings to the table that could be additive to the project longer-term?

David Smith

Yes, Rob, it’s Dave here. The – as you know, we’ve been pursuing the concept of this liquids pipeline for quite a long time. And I think, it became evident to us that SemCAMS and KKR represented a pretty strong partner. Sem has – as I think, some of our disclosure has indicated, Sem has a significant amount of processing capacity in the region that we expect eventually to be able to drop on. And they had been pursuing their own liquids egress project and I think both of us realized that it made sense to come together.

And with KKR, we have a partner – financial partner who is very, very excited and very bullish on the long-term outlook for the Western Canada Sedimentary Basin. So I think, our conclusion was that they were the best partner to be moving forward on with – on the project list.

Robert Hope

All right. That’s all.

Steven Kroeker

And maybe – sorry, Rob. And maybe just to add to that. Obviously, you’d have to talk to the folks of Wolf to get their comments. But the one thing I would like to just say about their team is that, they’ve been – they’re very incredible to work with. We have a great relationship with the Wolf team. And but clearly, we have a great partnership now with Sem.

And again, we have a joint objective to provide a competitive solution that’s customer base solution for liquids transportation. And if we’re successful in delivering that service, we’ll have a highly profitable joint venture, and that’s what we’re both working towards.

Robert Hope

All right, that’s helpful. And then just to follow-up on an earlier question. You touched on kind of the downstream growth potential there. But can you walk us through how much expansion capacity there could be in a KAPS, as well as could you go after additional liquids handling or hubs up in the field as well to kind of increase that growth side as well in the upstream angle?

David Smith

Sorry, you’re speaking to the potential to expand the KAPS pipeline [Multiple Speakers] to that?

Robert Hope

Yes.

David Smith

Yes. I mean, certainly, we see KAPS this being the initial scope. We can add more pumping capacity to increase the capacity of the pipeline. We are in active discussions still with the number of customers and that may change and alter the scope of the project. And obviously, it’s going to be based on economic that are acceptable to us, but we certainly see opportunities from that front.

And also downstream, I mean, I don’t think I could clarify exactly how much frac demand we will need or capacity we will need. But certainly, we see that in the future that more frac capacity will be needed and we’re prepared to build it as that demand rises.

Steven Kroeker

Hey, Rob, what I would say is, it’s a little early to quantify what those opportunities might look like in terms of scope and scale. But clearly, I think as you alluded to, we see opportunities at the downstream end of the pipeline to expand our frac and storage business. We think it strengthens our gathering and processing offering at the upstream end and may lead to expansion opportunities there. And, of course, the pipeline itself has lots of expansion capability.

Robert Hope

All right. Thank you.

Operator

And our next question comes from the line of Robert Kwan of RBC Capital Markets. Your line is open.

Robert Kwan

Good morning. I just have a number of questions here just on the contract. And I guess, first, what drives the 10% to 15% return profile? Is it you actually getting additional contractors, or is it the area dedications and facility specific volume is actually coming through?

David Smith

Robert, it’s Dave here. I think, as we indicated in our – in previous quarters, we – we’re generally looking at a 10% to 15% return on capital for – as a general comment for all of the investment program that we have currently underway. And I think what we we’re trying to say is that, starting in 2024, we expect that this project will be well within that range as well.

In terms of where though – where the volumes will come from, obviously, we have committed volumes that we talked about. We have – we expect growth from the customers that have committed volumes, but we expect a lot of new customers. And as Dean has mentioned earlier, in some of the conversations that were – that are still underway, we expect that there is an opportunity to expand the scope of the project. But we’re very pleased to be moving forward with the project as is currently scoped.

Dean Setoguchi

I think one of the key messages Robert is that, we believe that we’re going to be in the range – very comfortable to be in the range of 10% to 15% range in 2024, but we see the profile building over time. So when we bring the pipeline into service into 2022, there’s sort of a build period to get it up to fill up the pipe. So we’ll get in the range in 2022, but we think that those economics should improve 2024, but we expect the returns to improve as time goes on.

Robert Kwan

Got it. Okay. And then the 60% figure, which I guess is now 65% or so, is that only the take-or-pay commitments, or is that all commitments, including the area dedications?

David Smith

It’s just the take-or-pay.

Lavonne Zdunich

It’s all.

David Smith

It’s all.

Robert Kwan

It’s all. So put differently the take-or-pay is 75% of the 60%, or I guess, I’m correct by this.

David Smith

That’s correct.

Robert Kwan

Okay.

David Smith

That’s correct. So I would say, you’re referring to the area dedications as well. Yes.

Robert Kwan

Okay.

David Smith

Yes.

Robert Kwan

And the 14-year average contract, is that a weighted average?

David Smith

Yes.

Robert Kwan

Okay, that’s great. And then last, is there any capital cost protection built into the contracts?

David Smith

In terms of being able to pass on capital cost overruns, Rob, is that what you’re referring to?

Robert Kwan

Yes, exactly.

David Smith

Yes. So the short answer is no. I think we’ve explained in the past that, our starting point in developing this project was to match the tariffs on the existing system that are out there. We started from the point that we were going to be have to be competitive on – in terms of the tariffs. And then we put together a pretty detailed cost estimate and have concluded that it’s very economic at those – at that tariff level. But if there is – if there are cost overruns, that would be for the owners account.

Robert Kwan

Okay, that’s great. And then just finish with that somewhat granular question around gathering and processing your turnaround recovery mechanisms, especially for [indiscernible]. Can you just remind me how those are going to work? Are you recovering it in the current year? Is it post the turnaround, or is it that whole four-year recovery as well?

David Smith

It’s on a four-year recovery cycle. So we recover both pre and post turnaround for most of our facilities. So it kind of normalizes our facility returns.

Robert Kwan

Okay. So a bunch of those recoveries are actually currently booked into the Q1 results as well?

David Smith

Are you able to quantify how much that was in the quarter?

David Smith

Okay. Thank you.

Operator

And our next question is going to come from the line of Robert Catellier, CIBC Capital Markets. Your line is open.

Robert Catellier

All right. Thank you. Congratulations on the news, and I did have some follow-up questions, particularly around the costing. What capacity is currently envisioned for KAPS at this point? And what factors might influence that? And I’m thinking in particular, is there – the second point or pivot that comes with the passage of Bill C-69 or something of that nature?

David Smith

Let me – I’ll take that one, Rob. Thanks for the question. I think, first of all, on your second point, Bill C-69 as much as we don’t like it, doesn’t have a direct impact on this project. This project would be within Alberta jurisdiction, and we would be dealing with the Alberta Energy Regulator for most of the application and permitting required.

With respect to the capacity, we’re not being specific about that at this stage. We’ve indicated that we’re planning to build a 16-inch pipe for condensate and a 12-inch pipe for NGL mix. The actual specific capacity is not something that we’re prepared to talk about in detail as yet. Some of – there is some technical issues that still need to be worked out and there are some scoping that’s still to be determined.

Robert Catellier

Okay. The Bill C-69 was more of a holistic question to the extent that producers moves confident in export capacity in that box that could triple through the entire business rate and maybe have an impact on the commitments you’re willing to make?

David Smith

Well, it has an impact on the sentiment in the industry. But I think the specific concerns today would be more around the oil egress. For the products that we’re looking at that would be flowing our KAPS, specifically NGL mix and condensate, we don’t think that Bill C-69 is going to have an effect on the investment outlook for the company’s, at least, in the foreseeable future.

Obviously, LNG development on the West Coast, which is moving forward, is something that’s important to the producers in this area, because the natural gas pricing is an important part of the netback. But we’re looking more at the long-term value for liquids, like propane and butane and condensate. And we’re certainly with the development of West Coast export terminals and PDH facilities. We’re certainly expecting better days on propane. And we think the condensate will continue to be in demand to the extent that the pricing will remain strong.

Robert Catellier

Okay, that’s helpful. And then just – it’s obviously an important platform for future growth aspirations. But is there any one particular area that you’re most excited about and has the potential to the most upside?

David Smith

You mean a geographic region?

Robert Catellier

No, no, I’m just thinking either one part of your value chain are – could be geographic as well, but is there any like kind of the frac that gives you most upside the strengthening and expansion of the GMP, or is it something else?

David Smith

I think, we….

Robert Catellier

…maybe it’s all the above?

David Smith

Well, I think we continue to value in the integrated network. It’s the – the nice thing about KAPS that it gives us opportunities in terms of developing transportation capacity, but also additional gathering and processing and additional downstream type of investments.

Part of the characteristics of the gathering and processing business are a little different than the liquids infrastructure. Gathering and processing is a bit more geographic specific. And as we have to – you have to be confident in the geology, where you’re making those investments, where is the liquids infrastructure that we have at Edmonton/Fort Saskatchewan serves the entire basin. And so those are the kind of strategic criteria that we look at when we’re looking at it. But I think, we still put great value in the entire integrated value chain.

Robert Catellier

Okay. Thank you. I just wanted to – that is my last question, drill down into the marketing outlook that was provided, I think, it’s very valuable. But I’m just curious to comment about referring back to 2018 comparable butane cost comparable to 2018 contract. Is that as a percent of prude or the actual butane prices that were realized? And the same thing on RBOB, what sort of pricing hedges are you assuming in the long-term guidance?

David Smith

Yes, it’s a good question, Rob. Again, we – as I mentioned before, lots of variables. And so we do want get into a host of different variables, but rather just concentrate on a few key ones.

On the butane, as we’ve described in our MD&A before, we buy butane using in some type of relationship that WTI is for the most part. And so that was – that comment was meant to be more of a percentage basis relative to WTI. And again, it was meant to be a year that was sort of comparable of history in terms of giving you a guideline as opposed to the lower prices we had this year.

I would say on the – there is the range, so we looked at averages and moving around that a little bit in terms of the other variables. We just don’t don’t want to into a bunch of detail on RBOB and other things, but that’s a general approach.

Robert Catellier

Okay. That’s good context. Thank you.

Operator

And our next question comes from the line of David Galison of Canaccord Genuity. Your line is open.

David Galison

Hey, good morning. So just a follow-up questions to Robert’s on the KAPS return. Does the 10% return assume on the current contracting, or does it assume getting to a higher – a little bit higher level? And then kind of what takes you from that 10% to the 50%?

David Smith

On the first question, David, it’s our – the reference to the 10% to 15% ranges is our expected case. So it would assume additional volumes in addition to what’s initially contracted, yes, and is being alluded to earlier, there will be a ramp up once the pipeline has started operation in 2022. It’s – I’m not – we’re not going to be more specific than that with respect to sort of where we expect to be in the range and when.

I think the point emphasizes that we’re pretty bullish on the expected returns with this pipeline with the opportunities that we see to fill the initial capacity and then to protect – and then to expand the capacity.

David Galison

Okay. And then….

Steven Kroeker

Hey, it’s Steven here. I think the only other thing, I think, I would add is that, we just have to remember that we have – we’re in a very good position. We have 2.5 years still as ourselves in SemGroup and KKR to continue marketing that pipeline. So we’re looking forward to that.

David Galison

And then could you give just a little bit of color on the ramp-up, so [indiscernible] 2022 and what type of contribution you might see? And is that a quick ramp after 2014, or is it a slow one?

Steven Kroeker

Well, I think, at this point, it’s very difficult for us to be specific. I obviously with the additional contracting we expect to do, we would like to see a full day one. But at this point, it’s not something that we can get into much detail on.

David Galison

Okay. Thank you.

David Smith

What I can say though is a number of the contracts that we have signed have sort of a shape profile. So it’s not like it’s a flat commitment, usually it starts off at a lower rate and it continues to build over time in accordance with their drilling plants.

So that’s the component of what – that contributes to the increasing return in capital over time. But also, we see opportunities with future growth in terms of drilling and more production from that area. But also we believe that there will be opportunity for us to contract supply that comes off of our competitors’ pipeline system once those contracts expire. So there’s a number of different ways that we’re going to compete for volumes over time.

David Galison

Okay. Thank you very much.

Operator

And our next question comes from the line of Andrew Kuske, Credit Suisse. Your line is open.

Andrew Kuske

Thank you. Good morning. You had a strong quarter in the liquids side of your business. And I’m just curious, if you looked at your business absent the quota impact, how do you think the numbers would append out for you?

David Smith

There’s no duct. I mean, we saw nothing really unusual with our liquids infrastructure results in the quarter. We had a full – first full quarter with our baseline terminal contribution from net asset, and we see strong frac rates going forward in the – for the rest of the year. So overall, we believe it was a strong quarter, but nothing unusual to it.

Andrew Kuske

So your condensate deliveries, they were down in the quarter because of the quotas?

Steven Kroeker

Yes. Yes, a little bit down.

Andrew Kuske

[Multiple Speakers] again that?

Steven Kroeker

Well, there’s a little bit of variability, but a lot of it is take-or-pays where people commit to capacity on our system. And so it’s somewhat indifferent to phones or within their capacity or contracted ranges, we still get paid the same amount. There’s a variable component to it, but it’s not significant.

And part of the difference in the volumes, too, I guess, there’s two factors that influence. One is curtailment, but also it’s – with a weather conditions. The colder the ambient temperature is, the more diluents is generally required.

Andrew Kuske

Okay, helpful. And then, maybe just a bit more accounting purpose question and maybe just on the budgeting. When you look at where Simonette and this is just the budgeted amount, where you came in $10 million lower on this Simonette expansion than the original estimate and just what happened there? That’s obviously a favorable outcome, but what was the dynamic there?

Bradley Lock

This is Brad. And I think we continue to look for efficiencies in our construction project. I think we continue to to try to bring schedules forward, and I think a couple of those things led us to deliver the overall Simonette program at a slightly lower level of cost than what we had budged. So I don’t think, it’s – I mean, $10 million on a $190 million project is nice and I think we’d like to be able to deliver those on all the projects we do – we push forward.

Andrew Kuske

And then maybe just finally, I don’t know just bring it forward in a schedule when AEF was down on an expected basis, did you manage to bring anything forward that you’re planning, say, later in the year, or next year to just – on planned outage happened?

David Smith

Absolutely. I think, anytime we have an outage at any of our facilities once we kind of understand the time and scope that goes with it. We try to bring forward any other kind of maintenance it can be done at that time that enhanced longevity of that facility to get us through the next turnaround and there were certainly some projects that we did through that time to try to achieve that goal.

Andrew Kuske

Do you have a color value on that amount?

David Smith

It was not material.

Andrew Kuske

Okay. That’s great. Thank you.

Operator

And our next question comes from the line of Matthew Taylor, Tudor Pickering Holt. Your line is open.

Matthew Taylor

Hey, guy, one remarks on here. Just a lumpy service a couple of months ahead of schedule. Can you help me understand the cash flow ramp expected from the project over the year? I’m juts thinking through here and it looks contracts and counterparties were sale gas takeaway – take-or-pays, et cetera, participating around 50% utilized?

David Smith

Yes. I think, I mean, we’re certainly going to see Paramount’s production ramp-up here throughout Q2 into Q3. They do have some capacity limitations of their sales gas. It’s going to prevent them from – utilizing the full capacity. I think if we can get our Pipestone facility – the Pipestone compressor station up and running and allow that facility to come on efficiently, I would like to be able to see that our train one is running at full capacity by the time we get into next year. But really that’s at the drive of the producers and their well performance as they them on so.

Matthew Taylor

Great. Thanks for that.

Operator

And our next question comes from the line of Patrick Kenny, National Bank. Your line is open.

Patrick Kenny

Hey, good morning, guys. Just two quick follow-ups here. Just first on the 60% contracted level. Just wanted to confirm that, that doesn’t include any internal agreements with your marketing group, or with Sem or KKR?

David Smith

Pat, it’s Dave here. There is a commitment that Keyera has made as a customer of the pipeline and that’s part of what is in the project. But we still – even without that, we would still be over 60%.

Patrick Kenny

Okay, great. And then just on the marketing guidance here, the step down, obviously, you’re not assuming cheap butane forever. But maybe you could just give us your thoughts on when you might think the butane market would rebalance here and why?

David Smith

Well, we – I have seen the butane market rebalance to a certain extent already. But we do believe fundamentally that Western Canada is oversupplied, and again with the continued development of liquids-rich plays supply is increasing. So with that, we think fundamentally, that butane prices in Alberta will be lower than what they have been historically, but certainly not like what we saw in 2018.

Patrick Kenny

At the end of 2018?

David Smith

End of 2018 and what we contracted this year. Yes.

Patrick Kenny

Okay. That’s great. That’s it for me, guys. Thanks.

Operator

And there are no further questions at this time.

Lavonne Zdunich

Great. At this point, I would just like to thank everyone for listening in on our call. If you have any further questions, please give myself or Calvin a call, and we’ll be happy to help you out. Thank you, and have a good day.

Operator

This concludes today’s conference call. You may now disconnect. Have a great day.